UK companies must rediscover the lost art of innovation

David van Oss: I’m here today to talk about PwC’s new global innovation study and in particular its application to the UK businesses. I’m David van Oss, one of the partners in the UK innovation practice and with me is David Percival who’s the global client lead for the innovation practice and one of the co-authors of the report.

David Percival: Hi David.

David van Oss: Welcome and thanks for joining us. So we’ve heard a lot about an economy in recession, we’ve heard a lot about the first signs of growth. What does this study tell us about the relationship between innovation and growth?

David Percival: One of the reasons we did this study was it was becoming more and more clear that innovation was becoming a key driver for growth across the global economy, so we wanted to understand what was the bank for the book, and also what were the key drivers of the innovation that made it successful. So we identified from the population of 1,750 companies that participated, the top 20%, the ones who are the best innovators and we looked back over the last three years at their revenue growth and we found a very clear and direct linkage between how good an innovator you were and your revenue growth over the last three years to the scale that the average companies in that top 20% earned an extra 250m over those three years than the rest of the population. So we looked at how that would then drive into the UK and we found an equal correlation between the top 20% in the UK, but we also found, which was quite interesting, that the average in the UK was actually worse than globally, they were less innovative, less focused on innovation as a driver for growth and therefore achieved less revenue growth, which kind of fits with the economy that we’ve been living with.

David van Oss: That’s really surprising, clearly the UK has got some great creative companies like Rolls Royce or Dyson, Glaxo, in the media industries, WPP, the BBC, so aren’t we quite good at this? When we look at India and China why are British companies more half-hearted about innovation than their international competitors?

David Percival: It’s been a long history in the UK that we’re very good at coming up with great ideas, but one of the things we’ve found from the study is the hardest thing isn’t coming up with the great ideas, it’s monetising them, getting them to volume and getting them to scale, and that’s one of the areas that the UK is struggling with, is bringing innovative new ideas and then monetising them at scale. The second thing that we’ve found is it differs by industry, and manufacturing industries, especially high tech, have had a much bigger and longer history in innovation and therefore a higher level of maturity, and the UK just has less of those industries. The UK’s great at service industries, it has some wonderful service industries, but historically service industries weren’t as focused on innovation as the product industries and therefore they’re just less experience at it, and their innovation capabilities are less mature.

David van Oss: So UK businesses are experimenting with social media, they’re look at lower costs, they’re also involved in all sorts of collaborations. You talked about, earlier about the top 20% of the companies who are generating significantly faster rates of growth and revenue. What can the main stream companies in the UK learn from these leaders?

David Percival: The biggest thing that was striking difference between the UK and the rest of the world, and one of the biggest things we’ve learnt from the study is leadership. The most powerful companies in the innovation space, the top 20%, the leaders take a direct role in that, the CEO’s, the managing directors, the executives, they are directly driving innovation within their companies.

David van Oss: So not just leaving it to the boffin in the lab?

David Percival: Exactly, and that’s one of the things that was noticeably different with the UK, it is more left to the boffins in the lab, so one of the key things that the UK can do differently to both improve its innovation, but more importantly drive its revenue growth is for the leadership in these companies to take an active role in driving innovation. The second thing what was clear from the study is the companies that have been doing this for longer, which tends to be in some of the product industries have industrialised innovation, they’ve built it in as a core business process, they’ve put it in through all the methods, processes, tools, governance, metrics across their business and therefore achieve you know hundreds of millions of dollars of extra revenue growth, and again in the UK because of the service industry focus and the fact that that’s less mature in innovation we haven’t taken the time to put all those capabilities in, and therefore aren’t achieving the same level of results as some of the other countries.

David van Oss: That’s really interesting. So leadership, structure and a commitment to innovations is a driver for growth. PwC’s global innovation study covers more than 1,700 companies in more than 25 countries across most of the main industry sectors. It’s a rich report, we’d love you to read it, we’d love to have a conversation with you about how innovation can drive your growth. Thank you very much.

Britain’s management teams need to step off the sidelines and back bolder innovations that will secure their companies’ futures and the UK’s economic recovery, future growth and competitiveness.

From a UK perspective, companies are far less likely to focus on product innovation than their international competitors. Also, despite a clear competitive advantage in the UK’s university sector, a significantly lower proportion of UK companies plan to collaborate with academics over the next three years. They’re failing to exploit this key resource.

Innovation delivers growth

The top 20% of UK companies recognise the importance of innovation as a mainstream activity that must be sponsored by senior management and run in a structured way.

The UK’s most innovative companies grew on average 50% faster than the least innovative over the last three years. The picture outside this top 20% cohort, however, is not so encouraging.

Only 32% of UK companies see innovation as ‘very important’ to their success compared to a global average of 43%.

Only 16% of UK companies see product innovation as a priority over the next year, compared to almost a third globally.

Technology and services over product innovation

One of the most significant differences revealed by the survey between UK and global businesses is our focus on technology and services. By contrast, 29% of global companies focus much more strongly on products, compared to 16% in the UK.

UK businesses have real strengths in services. But they’re harder to export, especially into emerging markets with faster growth. Product businesses by comparison are going from strength to strength.

On the positive side, UK businesses focus strongly on technology and innovative value propositions. They are pioneering the use of social media to interact and innovate together with their customers.

Restarting innovation

Industrial, cultural and recent economic history all play a part in the UK’s diminished interest in innovation.

The move away from manufacturing towards financial services and property since the 1980s was part of a trend that led to many UK companies approaching innovation in a half-hearted way. Such companies are now falling behind their international competitors in terms of growth.

Interestingly, 76% of UK survey participants say they aim to grow in the next 5 years, and 23% aim for ‘aggressive’ growth. However, other data suggests that mainstream UK businesses are missing a trick when it comes to the bolder innovations that drive higher rates of growth.

These findings echo our 16th annual global survey of CEOs, published earlier this year, which found just 17% of UK CEOs rated research and development as one of their top three investment priorities over the coming 12 months. This is fewer by far than any other comparable economy. Read our CEO Survey http://www.pwc.co.uk/ceo-survey/index.jhtml.

Explore the data

You can explore the survey results and see how they relate to your industry. You can filter the data by 30 industry sectors and 25 countries.